Many technology companies use the concept of digital transformation to position their products and services, while others follow the trends, trying to understand the gears of this transformation.
We usually relate digital transformation with technological trends such as e-commerce, blockchain, IoT, big data, and more. But what is digital transformation and who is triumphing in the process? Is it possible to achieve this transformation by acquiring certain services and the implementation of new technologies? Can companies start a purchasing process, select the winning project and, after a few months, confirm that they have been transformed?
Companies such as Airbnb, Netflix, and Uber are commonly referred to as success stories or benchmarks for digital disruption. Typically, these stories are framed as: “The largest hospitality company, does not own any building or hotel room.” What do these companies have in common? Besides having billions of dollars in capital, what has allowed them to disrupt their markets?
There are undoubtedly many factors that have made these companies successful, and some of them are not applicable to other companies and industries, but there are two aspects worth exploring: their model and business strategy, as well as the strategic competence they have around technological development.
The business model and strategy is difficult to replicate. Each industry has unique characteristics and existing companies cannot make such abrupt changes in their operating model. However, there is a lot to learn when studying these platforms. The important thing is to be able to start an exploratory process—to identify opportunities in the company’s strategy and define a transformation plan.
Aggregators and platforms, those are the common denominators between AirBnB, Uber, Netflix and many more. Ben Thompson has described it very well, creating a theoretical framework to define the strategy of these companies and why they have been so successful—Aggregation Theory. Without going into extensive detail on what Thomson has written, it is important to highlight two key factors that define the Aggregators:
- Their business strategy has been integrated with the customer, not with the supply chain, which is what most companies often do.
- Technology has allowed them to exponentiate their reach and deliver value to the customer, allowing them to scale much faster and outperform the competition.
When thinking about strategy, the key questions that companies should ask themselves are: How can we integrate our business model with the customer? and How can we take advantage of digital platforms to exponentiate our reach in the market?
It is important to start this exploration because it is likely that there are many entrepreneurs asking the same questions, and sooner or later, they will find the answers and focus all their energy and capital on disrupting that industry.
Technology has become more and more essential part of business, even when it is difficult to perceive. Beyond tools and systems, projects and suppliers, technology should be considered a strategic competence. As such, it is necessary to nourish it, practice it, and dedicate resources. Only then will companies be able to understand the depths of technological development, the engine behind digital transformation.
For companies to develop this competence, it is important that they strengthen three pillars:
- Product and Platform Vision
- Agile Development
- Data Strategy and Artificial Intelligence
Understanding the life cycle of products is key to transitioning from projects to products and later platforms. Developing a product vision implies thinking about the customer and maximizing the value for the end user.
Developing software is much more than just managing suppliers and applying project management practices. In many cases the software is a living piece that nourishes key business processes. Therefore, it should be treated as a key capacity of the company, which must continue to improve in each iteration.
The data is much more than a data warehouse or a dashboard that executives can consult. Moving from data to knowledge and to decision making requires creating a clear data and artificial intelligence strategy. Companies generate pieces of information throughout each process and in all their interactions with suppliers, customers and employees; how they use and generate data value will be a key factor for the success of any company.
Digital Integration refers to the set of these three competences: Product Vision and Platform, Agile Development, and Data and Artificial Intelligence. These three factors are key to the success of companies in their transformation. Digital Integration involves bringing the business model closer to customers, as well as integrating technology as a strategic competence of the company.
In the next articles of this series, we will explain each of these topics in more detail and share examples of companies in Mexico that have implemented an Aggregators model to great success. We will dive into how to develop a product and platform vision; we will explain what agile development is, and how companies can benefit from implementing a set of related practices. Finally, we will analyze the impact of data and artificial intelligence in different industries and business scenarios.